Commodity ETF Alert April 2012 Portfolio Update
April 24, 2012
Global Economic Worries Persist…
After starting off the year with solid gains, commodity markets are now succumbing to global economic worries.
What are investors fretting about now?
First of all, European debt fears are once again coming to a boil. Concerns over high Spanish debt loads have investors pushing the country’s bond yields over 6%. Once rates surpass this critical threshold, government funding costs become unsustainable.
The troubling situation is progressing as we speak, so it’s too early to tell how it will play out. Hopefully we’ll avoid another bout of extreme market volatility like Greece gave us last summer.
But Europe isn’t the only problem…
Investors are also growing concerned with China. Recently released manufacturing and GDP numbers came in weaker than expected. If these important readings are slipping, it means China’s economic growth may be slowing.
But as scary as all this sounds, there’s a silver lining to these problems.
The Federal Reserve, People’s Bank of China, and the European Central Bank will do whatever it takes to keep economic growth alive. And that means we’re highly likely to see some form of economic stimulus out of these institutions in coming months.
That in itself is enough to entice commodity bulls to sharpen their horns…
Position Updates
. . . . United States 12 Month Oil (USL) – Sell
Middle East tensions are cooling…
Tough economic sanctions designed to bring Iran back to the negotiating table appear to be working. Since the rogue country now seems willing to bargain on their nuclear program, oil’s upside potential is likely limited.
As you know, we closed the first half of our USL position at a 27% profit in late February. Let’s go ahead and close the second half of this position for a gain of 22%.
I’m keeping a close eye on oil and we’ll likely revisit this trade again soon. But for now it looks as though crude may fall below $100 a barrel. Let’s take some solid profits while we have them.
Congratulations on a great trade!
. . . . Sprott Physical Gold Trust (PHYS) – Hold
No doubt about it, the past few months have been filled with twists and turns for gold. One day the yellow metal looks ready to roar, and the next it’s down in the dumps.
But the choppy trading should come to an end soon. Here’s why…
As you can see, gold is nearing the long-term uptrend line from the 2008 lows (blue line). This important technical inflection point should give bulls the juice they need to kick prices higher.
However, if gold doesn’t get a boost soon, the odds increase for a steep sell off to the $1,500 area.
So here’s what we’ll do…
Let’s move our position in PHYS to a hold. We’ve all had plenty of time to buy this ETF at reasonable prices. If gold moves higher from the long-term trend line in coming weeks, we’ll be along for the ride.
But if PHYS closes below $13.40 in the next two weeks, go ahead and sell it. We don’t want to risk riding gold down to $1,500 an ounce or lower.
. . . . iShares Silver Trust (SLV) – Hold
Much like gold, silver needs to make a move higher soon. Otherwise, there’s a risk the shiny metal will dive to the mid $20 range in coming months.
Now let me be clear…
I’m still very bullish on both gold and silver in the long run. But that doesn’t mean prices can’t drop a bit in the short-term. We may need to sell our precious metals positions so we can buy back in at lower prices.
If SLV closes below $30.00 in the next two weeks go ahead and sell it.
. . . . ETFS Physical Palladium Shares (PALL) – HOLD
Without a doubt, palladium is the top performer in the metals space…
The industrial/precious metal outperformed platinum, copper, silver, and gold with ease over the past few weeks. In fact, palladium rose from $640 an ounce to $680 in just the past few days.
As you know, we’re long palladium due to its overwhelmingly bullish long-term supply/demand fundamentals.
Let’s keep holding PALL for further upside…
. . . . iPath Dow Jones-UBS Sugar (SGG) – HOLD
Unfortunately, our sugar trade is taking a turn for the worse. Favorable Brazilian weather along with growing European worries have sugar bears digging in their claws.
But let’s stick with this trade just a little longer…
Sugar is deeply oversold at current levels. And that means SGG will likely see a bounce soon. Let’s keep SGG at a hold and see if this market can firm up in the near future.
However, if SGG closes below $79.00 in coming days go ahead and sell it. We don’t want to risk riding sugar to the 2011 lows of $0.20 a pound.
. . . . Teucrium Commodity Trust Corn Fund (CORN) – Buy up to $39.41
Our corn trade is starting off on the wrong foot…
Even though ending stocks may come in at their lowest level in years, analysts now believe a bumper US corn crop will alleviate any looming supply shortage.
What’s more, farmers are getting a head start on this years planting season thanks to ideal planting conditions. These bearish factors sent corn down from $6.50 a bushel to $6.00 in recent trading.
But here’s the deal…
Corn is oversold at current levels. And the fact is, a lot that can happen between now and harvest time. Given the unusually warm weather we’re experiencing here in the US, we may see a hot and dry summer. And that could push yields lower than analyst expectations.
If you haven’t already, buy CORN up to $39.41…
. . . . Path Dow Jones-UBS Cocoa (NIB) – Buy up to $32.37
After a rough start, our cocoa trade is back on track. Cocoa prices firmed up in recent trading on continued worries over the quality of Ivorian Coast beans. NIB is now trading just below our original entry point.
If you haven’t already, buy NIB up to $32.37.
Category: Commodity Trading
